What Is Holding the Procurement Specialist Back from Using Reverse Auctions?

Jonathan Rollason is Managing Director at Purchasing Auctions, and past president of CIPS. He explains how reverse auctions have been used all over the world to deliver millions in savings, yet there is still a hesitancy among many procurement professionals.

I don’t know very much about human behaviour but I do know a little about efficient procurement. I have been dismayed as to why procurement professionals have seemed reluctant to use reverse auctions as a cost-reduction technique. After all, they are quick to effect and put suppliers under considerable pressure to become more effective/efficient and thereby deliver products more cheaply to consumers. Could it be that it is simply too embarrassing to accept that you may have been paying too much for a product in the past?

The first time I used a reverse auction tool I was embarrassed. I had already bid my stationery requirement and thought I had a good price. A few years later I was looking for a product in the low-risk segment of the Boston Matrix and I decided to auction stationery as it seemed to fit. The system we used was very clumsy but worked. I invited the CFO to see the new tool in action and to hopefully promote the department. I was hugely embarrassed - as the auction progressed, the cost continued to fall and accordingly the savings rocketed. What had we been doing? The CFO was thrilled. She complimented us on introducing new technology and having the guts to try it!

I was immediately hooked and decided to build an online tool that was easy and cheap to use. I wanted a fully hosted, secure system to minimise the reliance on IT. I also wanted it to be highly intuitive so that any supplier in any country could easily use the system at a reasonable cost of entry. The proof of the pudding was getting an American retailer to invite Chinese manufacturers to bid for their requirement even though the manufacturers had limited English. It worked and the savings confirmed the ongoing trend.

Just last week a large UK company auctioned their stationery requirement using our platform. Six providers took part and a saving of 41% was made. In cash terms the saving is around £700K. The auction lasted just over an hour and the preparation lasted about a day spread over a week. Not bad for a day’s work!

Naturally they will not save as much by auctioning it again next year, but they will keep the supplier honest.

So why don’t more professionals use the tool - is it simply fear? One auction achieved a record saving of 72%! This was highly unusual as savings are more normally in the range of 10% to 30%. The client was horrified and so embarrassed they were determined not to get caught out again. So now we tell users to broadcast the fact they are using a new tool and they are seeking significant savings. We also suggest they identify areas that are lower risk and where value is key as a start. They sometimes need to be reminded that the contract does not have to be awarded to the lowest bid.

Fear of failure is a terrible trait and I guess it is within all of us to some extent, but it mustn’t be allowed to hold back the use of new techniques in the profession. If you haven’t tried it, I recommend you give it a go!